Commercial Litigation and Arbitration

FRAP 38, § 1927, § 1912 Sanctions — Bad Faith Not Required under Rule 38, But Sanctions Generally Imposed Only If Improper Purpose — Not Sanctionable to Urge, in a Complex Field, a Novel Argument Lost in Some District Courts But Never on Appeal

Hogan v. Jacobson, 2016 U.S. App. LEXIS 9373 (6th Cir. May 23, 2016):

In 2011, Violet Hogan sued the Life Insurance Company of North America for violating the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq., by denying her claim for benefits under a disability-insurance policy. After losing that case, Hogan appealed to this court, which later affirmed the grant of judgment against her. While that appeal was still pending, Hogan filed the present [*2]  case in the Jefferson County Circuit Court against Jo Ellen Jacobson and Kem Alan Lockhart, two nurses who worked for the Life Insurance Company of North America and who had provided opinions regarding Hogan's eligibility for disability benefits after reviewing her claim. Hogan carefully pleaded her claims in the second suit to avoid reference to the Life Insurance Company of North America or ERISA, alleging only that Jacobson and Lockhart committed negligence per se by giving medical advice without being licensed under Kentucky's medical-licensure laws. The defendants removed the case to federal court on the basis of ERISA's complete-preemptive effect, and the district court denied Hogan's attempts to remand the case to state court and later granted the defendants' motion to dismiss. Because Hogan's artfully pleaded state-law claims are, at bottom, claims for the wrongful denial of benefits under an ERISA plan that arise solely from the relationship created by that ERISA plan, we AFFIRM the denial of Hogan's motion to remand. Further, because Hogan's second claim for benefits is virtually identical to her first and suffers from the same infirmities, and because her new claim under [*3]  a different portion of ERISA fails to state anything beyond conclusory allegations, we AFFIRM the grant of the defendants' motion to dismiss. Finally, we DENY the defendants' motion for sanctions on appeal because Hogan's arguments are not frivolous.


C. Sanctions

Over the course of this litigation, the defendants twice sought to obtain sanctions against Hogan and her counsel. See R. 10-2 (Mem. in Supp. of First Mot. for Sanctions at 16-26) (Page ID #110-20); R. 57 (Second Mot. for Sanctions at 5-8) (Page ID #823-26). The district court denied the first motion as premature, R. 38 (Mar. 12, 2014 Opinion at 6) (Page ID #686), and stayed the second motion [*26]  pending appeal, R. 67 (Dec. 3, 2015 Order) (Page ID #857). Nonetheless, the defendants moved for sanctions on appeal, relying on Federal Rule of Appellate Procedure 38 and 28 U.S.C. §§ 1912 and 1927.

These provisions provide overlapping standards. Federal Rule of Appellate Procedure 38 provides for sanctions "[i]f a court of appeals determines that an appeal is frivolous." "Sanctions under Fed. R. App. P. 38 are 'appropriate when an appeal is wholly without merit and when the appellant's arguments essentially had no reasonable expectation of altering the district court's judgment based on law or fact.'" Scherer v. JP Morgan Chase & Co., 508 F. App'x 429, 439 (6th Cir. 2012) (quoting B & H Med., L.L.C. v. ABP Admin., Inc., 526 F.3d 257, 270 (6th Cir. 2008)). Although a finding of bad faith is not required for imposition of Rule 38 sanctions, "we  [**15]  will usually impose Rule 38 . . . sanctions only where there was some improper purpose, such as harassment or delay, behind the appeal." Barney v. Holzer Clinic, Ltd., 110 F.3d 1207, 1212 (6th Cir. 1997). 28 U.S.C. § 1912 provides that "[w]here a judgment is affirmed by the Supreme Court or a court of appeals, the court in its discretion may adjudge to the prevailing party just damages for his delay, and single or double costs." It "is 'similar'" in application to Rule 38, Kempter v. Mich. Bell Tel. Co., 534 F. App'x 487, 493 (6th Cir. 2013) (quoting Waeschle v. Dragovic, 687 F.3d 292, 296 (6th Cir. 2012)), cert. denied, 134 S. Ct. 1764, 188 L. Ed. 2d 610 (2014). Finally, § 1927 declares that "[a]ny attorney . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees [*27]  reasonably incurred because of such conduct." Section 1927 allows for sanctions when the "attorney knows or reasonably should know that a claim pursued is frivolous," Scherer, 508 F. App'x at 439 (quoting Tareco Props., Inc. v. Morriss, 321 F.3d 545, 550 (6th Cir. 2003)). "Section 1927 sanctions may be imposed without a finding that the lawyer subjectively knew that his conduct was inappropriate," but "the conduct must exceed 'simple inadvertence or negligence that frustrates the trial judge.'" Id. (quoting Ridder v. City of Springfield, 109 F.3d 288, 298 (6th Cir. 1997)).

The defendants argue that these standards are met because of Hogan's careful attempts to ignore the existence of Hogan I as well as the precise contours of the relationship between herself and the defendants. The defendants target all of the issues in this case for sanctions: (1) Hogan's attempts to avoid complete preemption; (2) the manner in which Hogan pleaded her claim for ERISA benefits; and (3) the manner in which Hogan pleaded her § 1140 claim. The latter two points, however, relate to nothing more than garden-variety losing arguments. Hogan's pleading of her ERISA-benefits claim is not sanctionable due to her suing the wrong party or failing to explain how she solved her prior administrative-exhaustion problem because she was not trying to plead an ERISA claim at all; rather, her state-law claims [*28]  were interpreted as such because she lost her complete-preemption argument. Hogan's § 1140 claim, while factually deficient, fails for reasons no different than a run-of-the-mill failure to state a claim, and the defendants cite no authority to support the proposition that sanctions are justified solely because a complaint contains conclusory allegations.

 [**16]  The defendants' true focus is on whether Hogan's attempt to avoid pleading a claim that could be removed to federal court, along with her creative arguments against removal and failure to cite unfavorable district court precedent, are sanctionable. To be sure, Hogan's counsel has lost variations of this argument repeatedly in Kentucky federal district courts.4 But these decisions are not binding, and Hogan offers reasons why some are arguably distinguishable from this case.5 At bottom, Hogan's counsel appears to have come up with a novel legal theory, and this is the first case to reach the appellate courts based on that theory. Counsel would have done well to acknowledge more fully the existing unfavorable case law, but that precedent is not so strong as to establish that the appeal is frivolous and clearly could not succeed. Especially [*29]  in an area of law as complex and fact-intensive as ERISA preemption, we are reluctant to sanction an unsuccessful attempt to push the boundaries of that doctrine absent stronger indications that the arguments were frivolous or that the appeal was otherwise brought in bad faith or to delay or to harass.

4   See, e.g., Milby, 102 F. Supp. 3d at 935 (finding that claim under Kentucky medical licensing laws was completely preempted by ERISA); Hanshaw v. Life Ins. Co. of N. Am., No. 3:14-CV-00216, JHM, 2014 U.S. Dist. LEXIS 151411, 2014 WL 5439253, at *5-6 (W.D. Ky. Oct. 24, 2014) (same); Anderson v. Standard Ins. Co., No. 3:14-CV-00051-H, 2014 U.S. Dist. LEXIS 150013, 2014 WL 5366117, at *3 (W.D. Ky. Oct. 20, 2014) (rejecting argument that the Kentucky licensing statutes are violated when an unlicensed individual reviews a request for disability benefits and distinguishing the same Kentucky Board of Medical Licensure decisions on which Hogan relies); Hackney v. Lincoln Nat'l Life Ins. Co., No. 3:12-CV-00170-CRS, 2014 U.S. Dist. LEXIS 73771, 2014 WL 2440691, at *13-14 (W.D. Ky. May 30, 2014) (same), appeal docketed, No. 15-5606 (6th Cir. June 8, 2015).

5   Many of the cases involved insurance-company defendants, so a § 1132 claim could have been brought against such defendants, unlike Jacobson and Lockhart who are improper defendants to a § 1132 claim. Although Hogan overemphasizes the importance of this distinction by reading the Supreme Court's decision in Davila to stand for the [*30]  proposition that a state-law claim against a particular defendant will be completely preempted only when it could have been brought as a § 1132 claim against that defendant, supra at 6, her misunderstanding is not so egregious as to warrant sanctions.


For the foregoing reasons, we AFFIRM the denial of Hogan's motion to remand and the grant of the defendants' motion to dismiss and DENY the defendants' motion for sanctions on appeal.

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